Analysts had been lowering their projections for the company on fears that the crumbling ad market would take its toll. Investors have hammered the stock, which is trading at half its value from November, when it topped $747.

Google’s stock hit a three-year low of $309.44 on Thursday but rebounded with the rest of the market to close at $353.02, up $13.85; it rose further in after-hours trading following the company’s earning report.

Google chair-CEO Eric Schmidt touted the underlying strength of the company’s core biz, but acknowledged that it might fall prey to the volatile market conditions.

“It is clear that the economic situation is so fluid that we’re all sort of in uncharted territory,” Schmidt said during a conference call with analysts.

To weather the turbulence, Schmidt said Google will keep a close eye on its expenses because “it’s the right thing to do.”

Schmidt was sanguine about the opposition to Google’s deal with Yahoo, now on hold as the Department of Justice completes its antitrust inquiry, saying the company anticipated a delay. Yahoo brokered the deal with rival Google after negotiations with Microsoft broke down.

On Thursday, Microsoft topper Steve Ballmer reignited hope that an alliance between the two would be consummated when he told a tech confab a deal with Yahoo “would make sense economically.”

He cautioned that there are no talks between the companies and Yahoo wants to stay independent, but investors weren’t easily deterred. Yahoo stock closed up 11% at $12.99 for the day.